Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla is open to a 50 basis point increase in the central bank’s key rates in August to accelerate its inflation-fighting efforts.
In a Viber message to reporters Thursday, Medalla said “there are pros and cons to gradualism” on the possible rate increases in the coming months, but noted that “if the inflation is too high, even if the causes are impervious to BSP’s kit of policy instruments, a monetary policy response maybe necessary.”
He said the central bank is “prepared to be more aggressive in raising its policy rates, compared to its initial gradualist stance. In particular, BSP is prepared to raise its policy rate by 50 bps by August.”
The BSP has so far increased key rates by a total of 50 basis points – 25 basis points each in May and June.
These were made after monetary authorities said the continued recovery of the domestic economy provides the BSP the leeway to help tame the continued acceleration of the domestic inflation rate, which breached the government’s 2-4 percent target band last April when it hit 4.9 percent.
The rate of price increases posted faster rates of 5.4 percent in May and 6.1 percent in June due mainly to the impact of higher oil prices in the international market, which affected domestic prices of oil and other commodities and utilities as well as resulted in second-round effects like fare increases.
Medalla said monetary authorities are closely monitoring the developments in the financial markets, specifically the hawkish stance of the Fed, following the 150 basis points increase in its key rates since last March, which is, in turn, targeted to address the 40-year high consumer price index (CPI) in the US.
He said these rate hikes have resulted in, among others, the depreciation of currencies around the world, including the Philippine peso.
Medalla underscored the need to address the weakening of the local currency because “if such pressures are left unchecked, these could add to the already high domestic inflationary pressures.”
Aside from the rate hike decisions, he said “the BSP is ready to take further policy actions if needed.”
“It will also continue to support and advocate for non-monetary actions by other government agencies to contain any further inflationary pressure that may spill over to 2023,” he added. (PNA)